Making deals sounds fun and exiting, right? Not so fast. If you’re survival always depended on making deals, how stressed out would you be?
Imagine you had a period of success. In fact, you had several months in which you had deals that gave you a surplus of money. Also, this was your only income from a business in which you owned. Therefore, you had no steady paycheck. Eventually, things tend to even out. You have a slow month or two. At first, you do not worry because you accumulated some extra cash from previous months.
Yes, you were stressed out a little bit at the very beginning. But things came together and money was flowing in. Then the dry spell came. Within the first month, you changed none of your habits and were not worried. You assumed that since you had some recent success, more deals must be around the corner.
Then the second month passes and things are still slow. You start to get nervous and begin to wonder when things will return to normal. You still have some money left so there is no need to panic yet. However, things start to get stressful. In the back of your mind, you start playing the ‘what if’ game. You ask what if I cannot make the mortgage payment or buy food a couple months from now. You wonder if the last few successful months were just an anomaly.
After considering that, you look at your average income over the last year. Not bad. But, what if you had a steady income and every two weeks you were guaranteed to get paid? It would seem like you got a raise.
If your income relies on your investments or by collecting commissions, you will not have a steady income. A steady income is simply worth more than making an equivalent amount that comes in bursts. It is also much more stressful.
This is a big reason why most successful investors place more emphasis on risk than on returns. Managing risk first will relieve much of the stress that comes from deal making. The more erratic your income stream is, the more cash you need to have as a reserve.